Alejandro Gay

Department of Economics, National University of Córdoba and CONICET. Corresponding author. E-mail address: [email protected]

Santiago Pellegrini

Department of Economics, National University of Córdoba, Argentina

First Draft: August 2002
This Version: Mars 2004

In this paper we deduce the equilibrium real exchange rate equation, considering a set of two countries and two sectors in the framework of the New Open Economy Macroeconomics (Redux Model). Solving the optimization problem faced by the representative agent, and based on the Johansen cointegration estimation methodology, the long-run behavior of the real exchange rate of Argentina in the period 1968-2002 can be explained by net foreign assets, relative sectoral productivities and terms of trade. On the basis of these fundamentals, the degree of misalignment is assessed. From the analysis of the dynamics of the model, it can be inferred that the collapse of the Convertibility fixed exchange rate was inevitable after the shocks initiated with East-Asian currency crises.

Keywords: equilibrium real exchange rate, cointegration, currency crisis, Argentina

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